Consumer Comeback Blog

Living with Bad Credit and Tips to Make It Easier

Written by Jeffrey Trull

train-wreck-bad-creditLiving with bad credit makes life harder. You’ll have more difficulty obtaining loans, and when you do, you’ll find less desirable interest rates. Bad credit can affect your employment and your living situation, too.

Despite this, living with bad credit might not be as hard as you think as long as you’re ready.

Coping with bad credit

The first step to living with bad credit is accepting it’s a problem.

Bad credit doesn’t just happen — it’s likely been caused by certain credit-related issues. Bankruptcy, foreclosure, liens, late payments, and carrying large amounts of debt are all potential causes.

Life with bad credit can be tough, but there are ways to fix the problem (more on that later). Here’s a few cases where bad credit can affect your life and how you should deal with the situation.

Living with bad credit

Just because your credit isn’t great doesn’t mean you’ll have to go without. Use these tips to navigate credit with a low score.

Loans

With bad credit, you’re going to be hard-pressed to find a loan with a good interest rate. How bad is it? Payday loans and the like can have interest rates of more than 100% APR. Ouch!

Even traditional loans won’t be a good deal. The difference between a car loan with good and bad credit can be more than 10 percentage points in interest, adding up to thousands of dollars. Mortgages cost much more, too, and you’ll probably need at least “fair” credit to qualify.

In reality, it probably makes sense to avoid most or all loans while you have bad credit. Your only hope may be loans suitable for those with bad credit, like home equity lines of credit, student loans, and reverse mortgages. However, each of these serves a specific need, so they won’t work for everyone.

Credit cards

Credit cards with reasonable terms can be tough to come by with bad credit. Some of the worst credit cards out there are marketed to those with bad credit. Forget about the best rewards cards, as they’re likely out of reach.

Your best option for keeping plastic in the wallet is likely a secured credit card. These cards have a dual benefit of allowing you to use credit and build a positive history.

Renting an apartment

Many landlords and property management companies run credit checks on potential tenants. If your credit doesn’t look so good, they may deny your application.

The good news is you may be in a position to bargain. It’s possible to bring on a co-signer to share the liability. Offering to pay a larger security deposit or several months’ rent up-front could sway the landlord, too.

It doesn’t hurt to be honest and try for sympathy. If hard times forced your credit to go bad, but you’re recovering, explain the situation to your landlord. A bad credit score isn’t always your fault, and if you’re a victim of bad luck, be honest.

Jobs

Bad credit can prevent you from getting a job. While many employers run credit checks, the statistics say not many are unwilling to hire those with bad credit.

According to a survey by the Society for Human Resource Management, only 53% of employers surveyed ran credit checks on job applicants. 80% of companies surveyed said they’d hired candidates who had negative information on their credit report. “Favorable background check results,” which includes credit checks, ranked last in the nine categories for most important factors influencing a decision to hire.

Nonetheless, if you do find your credit in question for a new job, just be upfront about your past problems. Many businesses check credit to prevent theft and embezzlement, so coming across as honest and trustworthy could go a long way to getting hired.

Living without credit

Living with bad credit may mean living without it in many cases. Some changes to consider could include:

  • Save before you buy. If credit card debt brought your score down, you’ve probably learned this lesson the hard way. Save cash instead of depending on credit.
  • Use debit, too. Don’t assume you have to go cash-only because your credit is bad. Debit cards offer much of the convenience of credit cards plus many of the consumer protections, too.
  • Look at alternatives for credit. There’s all sorts of examples when you’d usually use credit but it’s not needed. Use car sharing like Zipcar instead of taking a loan to buy a car. Rent an apartment instead of buying a house. Get creative and find ways to avoid going into debt.

In the end, you may benefit from not using credit much or at all. You’ll certainly save on interest and you’re less likely to get in a mess with debt.

Life beyond bad credit

You probably don’t want to live with bad credit forever. Not only does excellent credit make life in the above situations easier, but having good credit saves money.

Make a commitment to start nursing your credit back to health now. Identify what caused your credit score drop, and do all you can to fix that. If you have too much debt, work out a plan to pay some of it down. Make sure to check your credit report to make sure errors aren’t hurting your score, either.

For more advice on improving your credit, see:

Improve Your Credit Score

9 Myths That Won’t Improve Your Credit Score

How To Improve Your Credit Score Fast

(image: robynejay)

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